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Why Does My Fixed Mortgage Keep Increasing?


"I purchased a house a few years ago, and got a fixed 30 year mortgage that came to $2,522 including taxes. The mortgage has since moved hands and the new company is charging me $2,676 saying the additional money is going into an escrow account to pay taxes. I am wondering if this is legal?"

I completely understand why this might look suspicious but let me attempt to explain what is probably happening based on the information you provided.  First, it is important to know that there are two components to most mortgages.  The first is the mortgage itself that consists of the amount you borrowed (principal) and the fixed interest rate that you mentioned.  This is a specified monthly payment and will not change over the course of your 30 year loan because you have a fixed loan.

The second part of the loan is known as your escrow account.  If you look at any of your statements you will see this separate escrow account.  This account is used to pay your property taxes and your insurance.  Most lenders prefer that you have an escrow account so they can be assured that taxes and insurance are being paid.  Over time, your taxes and insurance will change.  Usually they will increase as your home value hopefully appreciates.  In order to account for the increase in insurance and property taxes, the lender needs you to pay more each month into the escrow account. 

I want to point out that even if your mortgage didn’t change hands, the original lender would have to do the same thing.  There is nothing illegal about this and hopefully, I’ve been able to explain why this is occurring. 

You could try to eliminate your escrow account and pay your property taxes and insurance separately, but there is limited financial benefit to doing so and in some cases would cost you more.  If you did this, your monthly mortgage payment would not change for the remainder of your term. 

I hope this was helpful.  I know it is never pleasant to have to pay more in taxes and/or insurance but at least you know you aren’t being “ripped off.”